. . . Or Not to Be?: Class Action Do’s and Don’ts from the Google Book Search Settlement Ruling

After many months of pondering, Judge Denny Chin, previously of the U.S. District Court for the Southern District of New York and now of the U.S. Court of Appeals for the Second Circuit, decided that the proposed settlement involving Google’s Book Search (GBS) project was not “fair, adequate and reasonable.” Though there is much good in widespread digital access to the world’s books, Judge Chin wrote, he was very “troubled” (a word that shows up frequently in his 48-page ruling) by how this copyright lawsuit settlement would reach that goal.

Washington Legal Foundation (WLF) filed objections to the settlement in 2009. While we are disappointed that the judge disagreed with our objection – that the notice provided about the settlement to the absent class members was legally inadequate – we were honored that Judge Chin specifically cited WLF’s objection in his opinion as a reference to those who advocated the opposing point of view.

Judge Chin’s decision directly impacts thousands of book authors and publishers. But it is also important for a number of broader principles and strategies in the realm of class action litigation that could affect thousands more future plaintiffs and defendants. Here are some class action settlement “do’s and don’ts” drawn from the lawsuit, its settlement, and the judge’s opinion:

Do Object or Opt Out.If you are a member of a plaintiff’s class, and you feel a settlement is not fair, make those concerns known by voting with your feet – opting out – or file objections with the court. Judge Chin noted that among the numerous factors which guide a reviewing judge’s decision on a class action settlement, only one – the “reaction of the class” – was “important” to him in assessing the GBS settlement. The objections were not only “great in number [500], [but] some of the concerns are signficant.” He also related that over 6,800 class members opted out of the settlement to pursue their own redress of rights.

Don’t Propose Settlement Terms Beyond the Scope Permitted Under Federal Procedural Rules. The settlement document proposed not only to address Google’s past allegedly violative conduct, but also to design, as the U.S. Department of Justice noted in its brief “forward-looking business arrangements that go far beyond the dispute before the Court.” Using the class action system to create such future rights and absolve a setting party of future liability are squarely at odds with the Rules Enabling Act. Judge Chin went further in his analysis of class action law, though, pointing out that the settlement would “release claims well beyond those contemplated by the pleadings,” and also that the plaintiffs representing the class “have not adequately represented the interests of at least certain class members.”

Don’t Tread on Constitutional Separation of Powers or Federal Law. Judge Chin reminded the parties of the Supreme Court’s pronouncement that “courts should encroach only reluctantly on Congress’s legislative prerogative to address copyright issues presented by technological developments.” He found that objectors’ arguments that the settlement violates the federal Copyright Act “may have merit.” The proposed GBS settlement seems to turn copyright on its head, the judge reasoned, by requiring authors and publishers to affirmatively act, rather than requiring the entity which wants to copy the books to seek formal permission. Sitting on one’s rights is statutorily and constitutionally protected, but under the settlement, copyright owners lose those rights if they do sit back. Judge Chin saw this as “incongruous with the purpose of the copyright laws.”

Do Assess a Settlement’s Impact on the Relevant Competitive Marketplace. Numerous academic commentators, objectors, and the U.S. Department of Justice raised multiple concerns with how the settlement might run afoul of antitrust laws. The judge’s opinion devoted a scant two pages to these issues, but the statements Judge Chin made were very signficant:

“Google’s ability to deny competitors the ability to search orphan books would further entrench Google’s market power in the online search market.

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Finally, a few open questions to ponder:

Will Judge Chin retain jurisdiction? He noted “the Court will hold a status conference on April 25″ but he did not tip his hand on whether he would be the presiding judge. There is nothing prohibiting him from sitting on the circuit court and maintaining control over a pending case in the district court, but it is unusual.

Will the parties agree to an “opt-in” regime? Generally, judges should refrain from telling settling parties specifically how to fix a settlement the court rejects, but Judge Chin did urge the parties to convert the settlement from one where parties were covered unless they opted out to one where they were covered only if the opted in. Google expressed great antipathy towards an opt-in regime at the settlement Fairness Hearing last year. Also, one has to wonder how changing from opt-out to opt-in will “ameliorate” “many of the concerns raised in the objections,” as Judge Chin stated, beyond the issues involving Rule 23.

Will the parties take their proposed settlement to Congress? One avenue other than reworking the settlement would be for Google and the plaintiffs to remove the matter from the courts and asking Congress to implement the settlement, or a facsimile of it, by legislation.

Will the settlement be salvaged or scrapped? Judge Chin’s opinion does not take the possibility of litigation off the table. If the parties cannot reach an approvable and mutually acceptable settlement, the publishers and authors could press forward to trial on whether Google and its GBS violated their copyrights. This question may be tied in with the first question, as Judge Chin’s opinion intimated that he has doubts about Google’s “fair use” defense. His judicial record also reflects a softer spot for copyright owners than alleged infringers.